ProBuild Contractors Sells to Government Agencies Using a Cost-Plus Contract

question 6

Essay

ProBuild Contractors sells to government agencies using a cost-plus contract and to private firms using fixed price contracts. What choices does ProBuild have in the design of its job costing system that affect the cost of the government jobs?

Analyze the role and importance of sunk costs in economic and business decisions.

Understand the implications of fixed costs in the short and long term.

Distinguish between explicit and implicit costs in cost analysis.

Evaluate investment decisions taking into consideration the time value of money.

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Definitions:

Tanker

A large vessel designed for transporting liquid cargo, such as oil, gas or chemicals.

Oral Contract

An agreement between parties that is made through spoken words and promises rather than in writing, yet is legally binding.

Unilateral Mistake

A misunderstanding where one party to a contract is mistaken about a basic assumption on which the contract is based.

Rescinded

Revoked, canceled, or repealed, usually by official or formal action.